Apr 14 2009
Tax progressivity in the US: Do the rich pay more than their fair share? The evidence indicates NO!
Published by Jason Welker at 10:59 pm under
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WikipediaFrom today’s New York Times:
Just How Progressive Is the Tax System? – Economix Blog – NYTimes.com
Not as much as you might think. So says Citizens for Tax Justice, which today released an updated analysis of the effective tax rates for Americans at different income levels.Data released last week by the Congressional Budget Office underscored the progressive nature of the federal tax system. And in an op-ed article today in The Wall Street Journal, Ari Fleischer, who served as President George W. Bush’s press secretary, used that data — in particular, the income tax numbers — to argue that the wealthiest Americans bear an unfair share of the tax burden. Other research has found that many states and local governments have more regressive tax systems, though, that might offset the progressiveness of federal tax rates.
The research from Citizens for Tax Justice — a liberal organization that advocates “fair taxes for middle and low-income families” — uses 2008 data for all federal, state and local taxes combined. It found that the average effective tax rate is 29.8 percent, and that including state and local taxes makes the tax curve look much less steep:
Horizontal axis shows the income group. Vertical axis shows the percentage of income that the average member of that group pays in taxes. Taxes include all federal, state and local taxes (personal and corporate income, payroll, property, sales, excise, estate, etc.). Incomes include cash income, employer-paid FICA taxes and corporate profits net of taxable dividends.The group also finds that in 2008 the share of total federal, state and local taxes paid by each income group was relatively close to the share of income that that group brings in, at least as compared to comparable 2006 numbers for effective federal tax rates:
Horizontal axis shows the income group. Taxes include all federal, state and local taxes (personal and corporate income, payroll, property, sales, excise, estate, etc.). Incomes include cash income, employer-paid FICA taxes and corporate profits net of taxable dividends.
Discussion questions:
- Based on the data above, do the rich in America pay an unfair proportion of the total taxes the US government collects? Why or why not?
- Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?
- How much of America’s total income is earned by the richest 1% compared to the poorest 20%? Does America’s progressive tax system destroy the incentive for Americans to work hard and become rich? Why or why not?
- Does the gap between the richest and the poorest Americans surprise you? Do you think that America’s tax system is effective at re-distributing the nation’s income? How does it succeed? How could it do better?
About the author: Jason Welker is a teacher at Zurich International School in Switzerland, where he teaches Advanced Placement and International Baccalaureate Economics. Jason was an international school student in Malaysia before studying economics at Seattle University then earning his Masters in Education. He calls Seattle and Northern Idaho home. In addition to maintaining an economics wiki and this blog for economics student and educators, Jason also gives presentations on using Web 2.0 tools in education at workshops and conferences around the world. His economics wiki won the 2007 "Best Educational Wiki" award from the "EduBlog Awards". Related posts:
- Cut taxes on the rich! How else are they ever gonna catch up with the super rich?
- The “teenager tax” – why expansionary fiscal policy just ain’t fair!
- A macroeconomic mystery – the gap between America’s “rich” and “poor”
- Understanding the difference between progressive and regressive taxes
- Would trade with the US make Cuba rich? Probably not
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Submit your Econ questions here. Replies will be posted to the blog
1. I think that it is unfair that the top1% pay nearly 25% of the tax income of the government. It is right that the tax is a progressive tax but it is too harsh on the rich people. eventhough they have enough money to live nicely it is unfair that a third of their income is taken away and only a fifth of the poorest.
2. I think that it is even unfairer for the 10-5% richest american to pay that much in theory it should be the richest paying the biggest percentage. But as the government makes the most money from the 5% richest americans, and nearly nothing from the 10-5% richest, they have to pay more of their income.
3. It does not destroy the progressive tax system because this is what it is aiming to do. But i think that it is unfair that 1% makes about 7 times more income than 20%. This is why i think it is unfair for the richest but the poorest need this money.
4. I think that the tax system does what it is supposed to do but I think that it is too harsh on the rich people. it could do that better by lowering the tax on the richest people and be more fair. And the gap does not suprise me as some people do not earn a lot but the ones who earn a lot do earn very very much.
1. Based on the data above, do the rich in America pay an unfair proportion of the total taxes the US government collects? Why or why not?
I think that there is clearly not a good balance in assigning the amount of tax money that each group pays in society, meaning that the poorest have to pay practically 20%, and the rich have to pay a lot of the money they earn, even if this is a lot. There needs to be a balance between the amount of money a citizen earns and the amount of taxes he or she has to pay. In this particular case, I do think that the rich pay too much tax money according to the money they make.
2. Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?
The government makes more money out of the richest 5 % then the one below them. Plus, it is also a question of philanthropy that this group does, and this philanthropy saves them from paying as much tax money, I think.
3. How much of America’s total income is earned by the richest 1% compared to the poorest 20%? Does America’s progressive tax system destroy the incentive for Americans to work hard and become rich? Why or why not?
I would say that the richer citizens pay around 21% more taxes than the poorer 20% of citizens. As well as I would say that this tax system would not destroy the want of the citizens to become rich, as this tax money is also a cycle for the population to earn more money in a way.
4. Does the gap between the richest and the poorest Americans surprise you? Do you think that America’s tax system is effective at re-distributing the nation’s income? How does it succeed? How could it do better?
The gap between the economic situation in rich and poor people is quite strong, and as I said before that tax money can also be a cycle and generate more money for society, indeed the Americans are not following this system correctly, when it comes to re-distributing the nation’s income. It does, for the rich, but it should lower the amount of taxes the poor have to pay.
Comment for Raphael.echl.f09:
It is true that the government should lower the tax on rich people perhaps, but what about the poorer people that have to pay an unbalanced amount of taxes according to what they pay. I agree with what you have to answer overall, but you should think about the economically week as well. ?
1. Based on the graphs above, it seems that rich people are not paying an unfair portion, it is more than the less wealthy, but in graph two it shows that it is almost proportial to the amount of income they recive.
2. Because there is less people in the richest 5% of america, their shared total income is less then that of the less richer people, there for the percent they pay should be lessened.
3. The shared income of the richest 1% is much larger than the shared income of the poorest 20%, about 4 times larger. america has a progressive tax system, however it does not destory the incentive for americans to work harder and earn more money, since overall they will be receving more money.
4. Yes, i did not think that such a small portion of people could make 4 times more than a much lager group of people. i think that americas system is fairly effective since no group is paying a large percent of taxes over their percent of income. it could tax the poorer slitly more and the rich not as much, but seeing that the poor people dont have the money needed to pay for then, i belive that it is doing a fairly sufficant job.
to Leyre.ecslb.f09
i belive that the poor should have to pay a fair share for the taxes, so i dont think the poor should pay less, perhapes even more inorder for a more balanced proportion between the share income and share taxes paid
1. Based on the data above, do the rich in America pay an unfair proportion of the total taxes the US government collects? Why or why not?
2. Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?
3. How much of America’s total income is earned by the richest 1% compared to the poorest 20%? Does America’s progressive tax system destroy the incentive for Americans to work hard and become rich? Why or why not?
4. Does the gap between the richest and the poorest Americans surprise you? Do you think that America’s tax system is effective at re-distributing the nation’s income? How does it succeed? How could it do better?
1. The graphs show that the wealthy are paying more of the taxes, but not without reason. If they’re earning more money, they can afford to be taxed more. Additionally, it loks like they’re paying the same proportion of their income in taxes as the poorer people do.
2. Because a smaller percentage of the richer people’s income is worth more then a larger percentage of a poorer person’s income.
3. America’s total income recieved by the richest 1% is far more then the lower 20%. The progressive tax system doesn’t discourage working hard and getting wealthy because their income will still be very large despite the increased level of taxes.
4. The gap doesn’t surprise me because the richest people in America are appalingly wealthy and the extremely poverty-stricken people are very poor. The progressive tax system is effective in the way it redistributes the wealth, and it’s fair because people who are that rich can afford to be taxed a little more. No tax system is going to be 100% approved by the people because the fact is that no one likes getting taxed, so this taxation system is like democracy, the worst one except all the others.
Response to Raphael:
No tax system will ever be called “fair” by everybody. Under the current system, rich people believe that its unfair because they pay more taxes then the rich people. If everybody was taxed the same, then the poor people would say the system is unfair because they’re paying the same amount of taxes as the rich even though the rich have way more money then they do.
1. Based on the data above, do the rich in America pay an unfair proportion of the total taxes the US government collects? Why or why not?
a. Based on the data above it would seem that the top percentile do have an unfair tax burden. However the press secretary of the Bush Administration –one that spent its time cutting taxes for high end corporations and earners- would obviously want to show it in this light. I do not believe that the rich Americans have too high a taxation rate, in fact I believe if anything it should be increased. One may fail to realize that even receiving 70% of your 7 figure salary, is still a 7 figure salary. Even receiving 85% of a low end salary only makes it that much smaller.
One argument that must be made is that it is, in general, the low end salaries that are most dependent on the government taxation. Tax money is used to fund government transport, healthcare, welfare and police, all of which could be considered as more important in the lives of the low income persons.
2. Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?
a. The amount of income that is required to be in the top 1% means that even a lightly lower taxation rate will still amount for far more money than the lower categories.
3. How much of America’s total income is earned by the richest 1% compared to the poorest 20%? Does America’s progressive tax system destroy the incentive for Americans to work hard and become rich? Why or why not?
a. Based from the graph, the top 1% earns 22.5% of the total income, compared to the bottom 20’s 3% share. This is surprising due to the massive difference in the number of people that comprise the top 1% compared to that of the bottom 20. It cannot be said of the American tax system that it destroys the incentive for Americans to work hard and become rich, after all that is the essence of the ‘American dream’. However the supporting argument would be that if one does break into another income category, one would have to pay more taxes. The reason that this is invalid although true is that the net or real income would be greater.
4. Does the gap between the richest and the poorest Americans surprise you? Do you think that America’s tax system is effective at re-distributing the nation’s income? How does it succeed? How could it do better?
a. The gap between the rich and the poor Americans does not surprise me. Much has been done over the last decade – especially with the Bush Administration’s ‘trickle down policy’ – to make it this way. I do not believe the trickle down policy does work, so therefore America does not do a good job at re-distributing the nation’s income.
To Kenneth.ecsla.f09
I completely disagree that the rich should pay slightly less taxes, already the smallest group of people have the largest part of the income, I believe it should be the complete opposite and the level of tax should be far higher than the top 1%’s share of the income.
1. Based on the data above, do the rich in America pay an unfair proportion of the total taxes the US government collects? Why or why not?
- In my opinion and after observing the graph above in the data is little biased. The reason why is that, the top 1 % of total taxes is 30.9% and the other graph shown of share of income and taxes paid is nearly reaching 25.0%. Therefore, it is unfair that the money is taken away from the both rich and the poor people. Which means, more wealthy people are paying more
2.Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?
- I think it is because there are less people in the richest 5% in America. Less percentages of wealthier people’s income is much more than a larger percentage of a poorer people’s income.
3.How much of America’s total income is earned by the richest 1% compared to the poorest 20%? Does America’s progressive tax system destroy the incentive for Americans to work hard and become rich? Why or why not?
- America’s total income obtained though the richest 1% is way more than the lower 20%. Which means the progressive tax system does not depress to be industrious and become wealthy because of the reason why their income will still be very large notwithstanding the increased level of taxes.
4.Does the gap between the richest and the poorest Americans surprise you? Do you think that America’s tax system is effective at re-distributing the nation’s income? How does it succeed? How could it do better?
- The gap between the economic and the rich side in America are awfully rich and the very poor people are much poorer. The liberal tax system is effective in the way it reallocates the wealth, and it is somehow reasonable and fair because people, who are rich that have been mentioned in the data, can afford to be taxed a little more. The tax system is definitely not going to be completely approved by the people since anyone likes getting taxed therefore this taxation system is just like democracy, except of all the others.
Raphael.echl.f09,
Raphael, I strongly agree with you of what you have stated in your answer. So do I think it is a clever thought that although wealthier people have enough money to live and afford anything for rest of their life than poor people, it is not fair that the rich people pay more than the poor people. On the other hand, I will also have thought like if the poor people had to pay more than rich people, then I would have said it is unfair as well. So, as a result, for, and in our economy, I think everyone has to be equal. This contrasting second idea came up after looking at both sides of what Leyre also has put; it is right, ‘it is true that the government should/necessary to lower the tax on rich people’
1. Based on the data above, do the rich in America pay an unfair proportion of the total taxes the US government collects? Why or why not?
This is a very controversial question, one that is a serious debate amongst the entire US. Honestly, I don’t think that this is unfair. The government needs money, that’s a fact, often to spend it on things that benefit everybody. So, I think it is fairest if they take the most money from the people that can afford to pay this, instead of burdening those that already have a scarce income.
2. Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?
This question is also related to much controversy. The richest 5% in America pay much more taxes than the poorest 5%, however, they pay slightly less tax than the 5% before them because of the protection that they have to protect their wealth.
3. How much of America’s total income is earned by the richest 1% compared to the poorest 20%? Does America’s progressive tax system destroy the incentive for Americans to work hard and become rich? Why or why not?
About 22-23% of America’s total income is earned by the richest 1%, as apposed to the approximate 3-4% that is received from poorest 20%. I don’t think that the progressive tax system destroys the incentive to word hard and become rich because even though these people need to pay the most amounts of taxes, they are still left with the most money to live. After all taxes have been paid, by both the poorest and richest, the richest are still left with a higher amount of money.
4. Does the gap between the richest and the poorest Americans surprise you? Do you think that America’s tax system is effective at re-distributing the nation’s income? How does it succeed? How could it do better?
The gap doesn’t surprise me, I think that it is a fair distribution of income. The government’s job is to create a tax system that will fulfill their needs by collecting money, but also by doing this is a manner that will burden the people the fairest. I think it is succeeding in taxing the rich the most, and the poor the least, however, I think that they could improve the system by increasing the tax burden in proportion to the peoples’ income (so, I think that the richest should be paying more tax than the 5% below them).
To: raphael.echl.f09
Like I noted in my response, these are all very controversial questions, and so it comes as no surprise that we have different opinions.
I personally think that it is fair the way that this tax system is created. In your response you said that it isn’t fair that 1/3 of the income of the rich is taken but “only” 1/5 of the poor. I think that this should be looked at from another view. This top 5% that is paying almost 1/3, has such a high income level that they can easily give this money away, but that 5% of the income that is being given away from the poor, is a LARGE amount for them, causing them to suffer more greatly than the rich.
1.Based on the data above, do the rich in America pay an unfair proportion of the total taxes the US government collects? Why or why not?
Based on the data in the article above, it would seem that the richest 20% of Americans have an unfair tax burden. In fact, those in the top 10% of income levels have to pay proportionally nearly twice as much as those in the lowest 20% of income levels. However, even though proportionally this may be a significant change, and the actual amount of money they pay in total taxes is very uneven, this organization of tax levels and percents can be seen as fair. Even though the richest 10% of Americans have to pay a very high level of taxes, their level of disposable income remains much much higher than the poorest of the Americans.
2.Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?
The gap between the share of the total level of income and the share of total taxes paid of the most affluent 5% of Americans is larger than that of the next 5%. Also, a smaller percent from the richest 5% of Americans can be equal to, or even higher than, a larger percent of the income of the next 5%.
3.How much of America’s total income is earned by the richest 1% compared to the poorest 20%? Does America’s progressive tax system destroy the incentive for Americans to work hard and become rich? Why or why not?
The richest 1% of Americans earn roughly 22% of the total income of the United States, in comparison to the 3% that the poorest 20% of Americans earn collectively. This is particularly astonishing because it means that the poorest 20% of Americans collectively earn 3% of America’s income, while the top 1% earns over 7 times that much. However, it cannot be said that America’s progressive tax system destroys the incentive for Americans to work hard and become rich because the level of disposable income of the richest 1% is so much higher than that of the poorest 20% that the percentage of taxes that they have to pay makes much less of a difference.
4.Does the gap between the richest and the poorest Americans surprise you? Do you think that America’s tax system is effective at re-distributing the nation’s income? How does it succeed? How could it do better?
The gap between the richest and the poorest of Americans does not surprise me, and I feel that the American tax system is effective in the re-distribution of the US income. The government has been able to come up with a system of taxes which will give the government the money that it needs while still fulfilling the needs of the differing classes in the American society. However, this tax system could be better by increasing the percentage of taxes paid in proportion the the income that they earn – the top 5% should have to pay a higher percentage of their income as taxes than the next 5%.
to John Lyons-Harrison:
I think you made a good point in that no tax will be universally approved. This is simply because nobody actually likes to pay taxes, and thus every tax will be criticized by a certain sector of the society. In my opinion, the role of the government is to choose the tax which will raise the least controversy, and still give the government the money it needs in order to do what it is supposed to accomplish.
to Alison.ecslb.f09
I agree for the first three answers and partially your last one. But you say that the richest 5% should pay more than the next 5%, but in the second graph it is seen that the richest 5% pay nearly 40% of all taxes paid. So to show that it is not only them that pay so much the government probably put higher % of what the next 5% have to pay. Like that the government income is higher from th next 5%.
Based on the data presented, the rich in America pay an unfair proportion of the total taxes the United States government collects. The top 5 percent of income groups in the United States pay the highest level of percentage of income to taxes. 32.3 percent of their income is devoted to and taken away by taxation, compared with the lowest 40 percent of income groups who on average pay around 20 percent of their income. Comparably, the difference between paying one third to paying one fourth, with such drastic differences in the amount of figures of income, is significant and unfair.
The richest 5 percent in America pay a lower level of tax on average than the 5 percent below them because considering the amount of their income it makes sense. In order for the government to make a similar amount of revenue from the richest 5 percent to the lower 5 percent, the richest mathematically needs to be taxed less. The difference in income group makes up for the lessened taxes, nearly equivocating
The top 1 percent of income groups in America pays around 23 percent of all taxes paid in America, compared to the 3 or 4 percent paid by the lowest income group. This progressive tax system does destroy some of the incentives for working hard in America and become rich. The mentality created by this system is why work hard when I just have to pay one third of my income, which in some cases just goes to the lowest 20 percent, who only pay 3 percent of all taxes? It seems like while though the lower class has to live day to day generating the least income, they get the better end of the deal, not having to pay nearly enough taxes and then receiving what others do pay.
I thought that the gap between the richest and poorest Americans would not surprise, but in fact I am shocked. Just thinking about the difference between paying one third of the money you make to paying less than one fifth of your income. Before I thought that when I heard the richest income groups complain about their taxes, they were just being greedy, but now that the difference was quantified for me, it is unfair and unproportionate. If the top group still paid one fourth instead of one third, the amount of revenue the government would make on revenue would still be higher than the lower groups, so they still would be paying for what they have, because the top group clearly does have more things to be taxed so their amount of taxes should be higher. But the difference in percents is what is alarming, there should be a flat rate, all income groups should be paying one- fifth to one- fourth of their income, that way the income groups are actually proportionate.
Alison,
I disagree with your last statement about how the top percent of income groups should be taxed more. The rates right now are not proportionate, the top income groups percentage is significantly higher already than the lower twenty. That, to me, doesn’t make sense, if the rates were flat then the higher group would still pay more money, but in this way it would be fair. Consider, if an income was 20,000 and had to pay 18% of their income, they would pay 3,600 annually. At the way things are now, if an income were 1,000,000 they would have to pay nearly one third of their income, at about 330,000 dollars. Which is drastically different. However, if it were a flat rate, the 1,000,000 income would pay 18 percent at 180,000 dollars, which is fair.
1.Based on the data above, I believe that the rich in America pay an unfair proportion of the total taxes the US government collects. The graphs reveal that the top 1% or total taxes is 30.9%, and the graph showing Shares of Income and Taxes Paid reveals that that 1% pays approximately 24% of total taxes. However, this is, as a matter of fact, progressive tax; therefore it is supposed to aid the less well-off.
2.The richest 5% in America actually pay a lower level of tax on average than the 5% below them because a smaller percent from those receiving more income may be the equivalent to those below them.
3.The richest 1% of Americans earns approximately 23% of the total income in the US, whereas the poorest 20% earns about 3% of the total income. I do not believe that America’s progressive tax system destroys the incentive for American’s to work hard, because the disposable income of the richest 1% still remains higher than that of the less well-off. Therefore, the taxes the richest must give up still don’t make a large difference in comparison with the amount they make and receive.
4.The gap between the richest and the poorest does not surprise me, for there is also a large gap between the salaries of the richest and the poorest, therefore, it is not entirely unfair. I feel that the tax system in America is effective at redistributing the nation’s income because it is able to gain a fair amount of money to utilize while also putting the different classes into consideration. However, I believe if a progressive tax system is used, then it should be done in a proper way. The top 5% should have a higher income tax than that of the lower classes, for they make a higher income.
To John Lyons-Harrison:
I agree with many of your statements, especially when you responded that no tax will ever be considered fair, however, you said that the amount being taxed on them seems to proportionate, but if that were so, the top 5% would not be paying less income tax then those receiving a smaller income than them.
1. Based on the data above, do the rich in America pay an unfair proportion of the total taxes the US government collects? Why or why not?
No, I do not believe the rich in America pay an unfair proportion of the total taxes the US government collects. This is because most of these people have money invested which allows them to collect much more money than usual. Also, many of these people, due to their economically superior position, have the means to spend more time doing charity work and such, all of which is tax deductible.
2. Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?
The richest 5% in America pay a lower tax because they are in a situation of immense power, and there wealth no longer comes from income. For example, Steve Jobs, CEO of Apple, only earns $1 a year but he owns the controlling share of this and many other companies which allows him to live the lavish lifestyle he does. Also, many of the richest people control major markets and the government does not want them to reduce their investment in those markets due to their taxes being too high. For example, if Ted Turner were overly taxed, he may stop investing so much money in CNN and the station may fail due to a lack of funds. This would be very detrimental to the American televised news market.
3. How much of America’s total income is earned by the richest 1% compared to the poorest 20%? Does America’s progressive tax system destroy the incentive for Americans to work hard and become rich? Why or why not?
the Richest 1% has a total of over 20% of America’s income compared to the less than 5% earned by the poorest 20%. I do not believe the progressive tax system destroys the incentive for Americans to work hard and become rich. This is because most of the poorer people do not know that the richer people pay a larger tax percentage. Also, it is not the progressive tax system, but the welfare system which destroys the incentive to work. Most people in the poorer 20% will not work if they know they’ll be getting money from the government anyways.
4. Does the gap between the richest and the poorest Americans surprise you? Do you think that America’s tax system is effective at re-distributing the nation’s income? How does it succeed? How could it do better?
No, the gap does not surprise me at all. I believe that in its objective, the American tax system is effective at re-distributing the nation’s income. The real problem is the objective. The nation’s objective and methods do not promote an incentive to work harder. If this were to happen, then the gap would actually shrink and the American country would be richer than ever
In response to Theresa:
Though I understand your opinion, I must say that we must remember that though the richer people pay a larger percentage of the tax, they also make a larger percentage of income, and this does not include the money they have invested already.
Why would the government want the same revenue from this group? And if they wanted the same revenue from a smaller group, why wouldn’t they increase the taxes?
Don’t forget that most Americans are not aware of this taxation style, it is actually the prospect of welfare for the poorest Americans which destroys their incentive to work.
Remember that even though the rich pay 1/3 of their income, they make it all back in investment, plus they stay rich. If the poor lost 1/3 of their income, that would mean choosing between food and clothing for the month for their families. We must remember that it is not just the numbers, but also the human factors which affect the taxation decisions.
1. Based on the data above, do the rich in America pay an unfair proportion of the total taxes the US government collects? Why or why not?
The data above shows an unfair proportion of the total taxes collected from the rich Americans. This is because their proportion of tax paid is relatively higher than their income.
2. Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?
This shows that the richest 5% in America is a lot richer than the 5% below them and hence they pay a lower level of tax. This shows that the income distribution in American is uneven.
3. How much of America’s total income is earned by the richest 1% compared to the poorest 20%? Does America’s progressive tax system destroy the incentive for Americans to work hard and become rich? Why or why not?
The richest 1% is gained 20% more of the total national income compares to the poorest 20%. Although there is wide difference between the rich and the poor, the American tax system ruins the incentive for Americans to work hard. This is because there is an unfair tax rate, which the poor has a low tax rate and the rich has a really high tax rate.
4. Does the gap between the richest and the poorest Americans surprise you? Do you think that America’s tax system is effective at re-distributing the nation’s income? How does it succeed? How could it do better?
The tax system is effective at re-distributing income, as more tax is collected from the rich (a progressive tax rate). However, it could be better by encouraging the people to work at the same time, such as cut down unemployment benefit.
To Olajumoke
In question 2, you gave to example of Steven Jobs and explains that he can have a no-tax income. However, don’t government collect profit tax from profits?
1.Based on the data, the rich in America do, in fact, pay an unfair proportion of the total amount of taxes collected by the United States government. The top 5% of income groups in the U.S. have to devote 32% of their gross income to taxes while the lowest 40% of the citizens only have to pay 20% of their income. One third of a high income compared to one fifth of a relatively low income is highly unfair to those in the country who make more money.
2. The richest 5% of people in America pay a lower level pay, on average, a lower level of income tax than the 5% below them. Consdering their gross income, this makes a lot of sense. For the government to make an equal revenue from both income groups, they must increase the tax for the groups who make less money. By making them pay a higher percentage on their income, they mathematically pay the same amount as those with higher incomes who pay a slightly lower percentage.
3. The top percent of income groups in America pays roughly 23% of all American taxes, while the lowest income group contributes to roughly 3% of these taxes. This tax system, however progressive it may be, destroys the incentive for Americans to work hard and become rich. If, by becoming rich, a person has to give up almost one third of their entire income, they may be tempted not to work so hard, which could contribute to a higher profit resulting from a lower income as well as a lower tax rate. This money, then, goes to the lowest 20% of the income groups, who contribute minimally to the tax revenue of the country. The poorer work day by day, generating little income, but also paying little in taxes, while receiving some of what the rich pay in their taxes. Why should the rich have to pay for the poor when they worked as hard as they could to become rich in the first place? This is the mentality created by the progressive tax system.
4. The gap between the richest and the poorest in did surprise me. There is such a big difference between one third and one fifth of one’s income. Also, thinking about it in terms of the income difference, one third of a high income is a lot more money than one fifth of a skimpy income. It is shocking just how much the rich in this country have to pay, just for making more money. It is highly unfair to those individuals who worked hard to make the money in the first place. I think the percentage should be changed to roughly 25% rather than almost 33% for the rich in America. If this happened, the rich would still be paying a higher income and the government’s revenue on this income would still be high, but they would not be paying an exorbitant amount of their income. This way, they would keep some of what they make and the percent change in income tax between income groups would actually be proportionate.
Theresa,
I agree with what you said about the flat rate income tax (or at least almost flat rate). This would be a good way for the government to make sure they keep everything fair for everyone, rich as well as poor. As the level of income rises, the proportioin of income taxed should not. Why is it fair to take more money, just because a person makes more money? If you give them the same tax percentage as those of lower income levels, they are still going to pay more and the government will make more in revenue. It’s like you said with your 18% example, if a person making $20,000 a year has to pay 18% in taxes, they are paying $3600. However, if a person making $1,000,000 per year has to pay the same rate, they are paying $180,000 to the government. This is fair. Both parties get to keep the same percentage of their income, therefore the rich are not punished because they are rich.
1 I think that the USA’s rich people don’t pay an unfair quantity of taxes. In Spain the government employee pay a 30% of their income as a tax, and they relatively good (and they have a lot less money than the rich people of the USA). I think that this system of pay could be considered unfair, not because the rich people pay too much but they pay so few. It doesn’t make any sense to say that the riches should pay less and the people that don’t have money enough to pay a health insurance have to pay more.
2 This could be provoked by a range of different things: they have better accountants, they do several thing s to have tax exemption, they defraud to the state but they have better lawyers to defend them …
3 The riches pay around a 25% more than the pores. This tax system doesn’t destroy the initiative even it helps to create more initiative because it allow poor people to have more opportunities to reach the rich people
4 It doesn’t surprise me, is it something that is always in the news in my country. I think that this policy is doing OK I think that the thing that should change is the way that the money obtained by this system is use I think that if he USA want to decrease the difference between the riches and the pores the should create public health and public education.
raphael.echl.f09
I don’t think show I think that the reach people should pay more is the poor people the one that should pay less. If the USA people didn’t increase the tax to the reach people, they would not be able to obtain the equality in the society the want.
1. Based on the data above, do the rich in America pay an unfair proportion of the total taxes the US government collects? Why or why not?
– Clearly answers to this question are going to vary widely based on perspective and opinion, but as far as I’m concerned, the rich in America do not pay an unfair proportion of total taxes collected. No, taxes are obviously not even for all income levels, but for good reason. In order to keep our public schools open, to employ adequate police, fire fighting and emergency medical services and to keep our roads safe and clean, the government needs money and its only source is the American citizens. It only makes sense to tax the richer more because they have more disposable income. If tax rates rose evenly across all income levels, eventually taxes on the lowest levels would begin to dip into the standard cost of living. The government can’t reasonably take a person’s grocery money or the money allotted to pay the electric bill. And as it stands, the rich remain rich even though they pay more taxes. This isn’t a new idea either. Going back to Adam Smith’s canons of taxation, taxes should be levied based on ability to pay.
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2. Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?
– The sum the government takes in from the taxes of an income level is roughly equivalent to the share of the total income in America that level brings in. To keep this balance, the government must charge the next 5% slightly higher taxes than the richest 5%. I would go along with the idea that the government does it to bring in equal amounts from each level, but the second graph clearly contradicts this.
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3. How much of America’s total income is earned by the richest 1% compared to the poorest 20%? Does America’s progressive tax system destroy the incentive for Americans to work hard and become rich? Why or why not?
– About 23% of America’s total income is earned by the richest 1% while about 3% of America’s total income is earned by the poorest 20%. As for the second question, it’s my opinion that no, America’s progressive tax system does in no way destroy the incentive for Americans to work hard and become rich. Highest tax levels obviously claim a significant amount of their incomes, but it only pulls from their huge sums of disposable income. For the America’s richest, basic needs absorb a minute fraction of their annual income, while they absorb the vast majority of the income for the poorest 20%. In my opinion, saying our progressive tax system destroys the incentive to work hard seriously underestimates the gap that remains between the rich and the poor.
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4. Does the gap between the richest and the poorest Americans surprise you? Do you think that America’s tax system is effective at re-distributing the nation’s income? How does it succeed? How could it do better?
– I’m not surprised by the gap between the richest and the poorest, and I think overall America’s tax system does a decent job at re-distributing the nation’s income. It acquires the money it needs and mostly manages to fulfill its obligations to people of all income levels. However, I don’t believe the richest 1% should pay lower taxes then the next 4%, next 5% and next 10%. Something needs to be adjusted there.
To Olajumoke.ecslb.:
I think your answer to the second question was really, really interesting and much more conclusive than any of the other answers given. This is something I hadn’t ever considered, but I think you make a good point. The richest Americans often have investments in corporations that have a great amount of sway over the American economy as a whole. The government might very well keep their interest rates a bit lower to encourage them to continue such investments.
1. Yes, the rich pay too much tax to the government. It’s true that they should pay more than the poor, but this disparity is too large to be fair. The government should try to get more revenue by alternate means instead.
2. It’s a lower level because the rich can afford to influence lawmakers, while the poor cannot.
3. About 23-25% of America’s income is earned by the richest people, compared to about 3% by the poorest people. The tax dos not destroy the incentive to work harder, as while the rich lose more money they make enough money to balance it out.
4. The gap does not surprise me at all. There will always be rich people and poor people. The money should not be redistributed, as the rich earned it and should get to keep it, rather than having to give it to those who happen to have a bit less. The system is rather ineffective, as while it tries with the benefits, they are too small to make any real impact.
Courtnei.esclb.f09,
The rich worked for their money, so they should be allowed to keep it. If they have to give it away, there’s no incentive to ever work for anything. After all, why work when you can just get a handout for free and no effort on your part?
The balance is clearly unfair. However, it is unfair to all levels of income. The balance between the amount of money earned by an individual and the amount of taxes they pay should be proportionately well distributed. It, however, is not. The rich in America do not pay an unfair proportion of the total taxes that the government collects because they do have the most income, and therefore should be paying the most out of their income. A rich individual can pay in taxes what a poor individual receives as their total income without taxes being subtracted. It wouldn’t be fair for that poor individual to have to pay that amount, because they would be left with nothing for their necessities. Almost all socioeconomic groupings pay a proportionate amount, as shown by the above graphs, however, the rich pay the largest share of taxes because they can afford to pay that amount. The lower income groups cannot afford so much more to be taken out of their paychecks as some cannot afford it already.
The richest 5% in America actually pay a lower level of tax on average than the 5% below them because they are in control. Those who have the money make the rules, means that they have the most influence on the government. Through their funding, they support the economy and the government, so the government gives them an incentive to keep funding the economy and the nation. The next 5% to 10% shouldn’t be paying more than the top 5%, but they are.
Around 22% of America’s total income is earned by the richest 1%, while around 3.5% is earned by the poorest 20%. That’s around 6 times more of America’s total income. America’s progressive tax system does not destroy the incentive for Americans to work hard and become rich, because even though the rich are taxed more, they still earn so much more money, that a couple more percent of their income compared to that of the poorest is not that crucial to them. People want to be successful and earn a large income, and America does its best to encourage that.
The gap between the richest and the poorest Americans does not surprise me, however it is appalling that the gap is so large. America’s tax system is not very effective at redistributing most of the nation’s income, however it does redistribute a little bit of the income well. It succeeds in redistributing a little bit through the poor not having to pay quite as much in their taxes, however, the rich still do not pay enough to cover for the poor’s deficient. It is hard to judge what is fair in taxation. It could do better in balancing, however it does a decent job.
Response to John Lyons-Harrison
I agree that the wealthy are rightfully paying their share of taxes, because they do earn more and can afford to pay more. They do also pay almost the same proportion, which is fair, yet I almost believe that they should pay a little more, because they can afford it. I agree with you when you also said that “because a smaller percentage of the richer people’s income is worth more than a larger percentage of a poorer person’s income.” It is very true and I totally agree. It is very true that America’s richest 1% earns far more than the poorest 20%, and the progressive system doesn’t discourage them from earning as much as they can. Americans are appallingly rich and extremely poor, and the progressive tax system tries to redistribute the wealth.
1) Based on the data above, do the rich in America pay an unfair proportion of the total taxes the US government collects? Why or why not?
No absolutely not. Taxes should be progressive anyway, thus the higher your income the greater the tax. The rich deserve to pay higher taxes as they are obviously more capable of doing so. What would be unfair is if the poor or middle-class were paying the majority of the tax burden. They share more than 20% of the total income so why not pay about the same for taxes?
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2) Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?
I’m not sure why this is so but it is probably because of tax evasion. Some rich people do not feel obliged to pay taxes and thus try to avoid doing so. This shouldn’t be as the richer you are, the higher your taxes should be.
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3) How much of America’s total income is earned by the richest 1% compared to the poorest 20%? Does America’s progressive tax system destroy the incentive for Americans to work hard and become rich? Why or why not?
The richest 1% earns approximately 22% of the total income while the poorest 20% earns about 3% a year. That’s almost a whopping 20% difference. America’s progressive tax does not destroy the incentive for Americans to work hard and become rich. I’m sure they would rather be rich and pay higher taxes than poor and pay very low taxes. The rich pay high taxes with ease and they still maintain their status of wealth. Instead, having a regressive tax would simply demoralize the poor and that will lower the incentive of lower-earning families to work because they will have no hope. No one wants to remain poor, regardless of progressive taxes.
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4) Does the gap between the richest and the poorest Americans surprise you? Do you think that America’s tax system is effective at re-distributing the nation’s income? How does it succeed? How could it do better?
Sadly it really doesn’t. The rich just get richer while the poor get poorer. And, as this gap increases so does the animosity towards those of a higher status. The fact that America is in a recession doesn’t help that case either. I do think America’s tax system is effective at re-distributing the nation’s income, though President Obama is trying to improve upon it. Nothing is better than having a progressive tax. Furthermore, the tax is about the same as the income so that works out well. The poor should probably have lower taxes as they need to retain their money much more than the rich need to.
Michael you say the government should try to gain revenue by alternate means but what alternatives are there? Taxes are the most effective way to increase revenue. It’s not like the rich are struggling to pay the tax. The reason why they pay so much more is because thy make so much more. Just look at the difference in income– it correlates with the disparity in tax.
Courtnei, excellent and very well thought out answers especially for #1 and 2. I like how you explained why the next 5% pays more than the top 5%. I never looked at it that way.
1. Based on the data above, do the rich in America pay an unfair proportion of the total taxes the US government collects? Why or why not?
The rich Americans do not pay an unfair proportion of the total taxes collected by the US government. The explanation for this is quite simple. The rich in America are more able to pay taxes than the poor, so they should, as dutiful citizens of the nation, pay more.
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2. Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?
The richest 5% of Americans pay a lower level of tax than the 5% below them because of the regressive tax systems put in place by local and state governments. At high income levels, these tax systems are able to offset the progressive federal income tax. This results in the top 5% paying a lower average rate than the next 5%.
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3. How much of America’s total income is earned by the richest 1% compared to the poorest 20%? Does America’s progressive tax system destroy the incentive for Americans to work hard and become rich? Why or why not?
The progressive tax system does not destroy the incentive for Americans to work hard to become rich. While the top 1% pay about 12.2% more income tax than the lowest 20%, they make more than 1,000% more money. It is foolish to think that the progressive tax would make people suddenly not want to have more money in their pockets.
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4. Does the gap between the richest and the poorest Americans surprise you? Do you think that America’s tax system is effective at re-distributing the nation’s income? How does it succeed? How could it do better?
It is quite shocking that the top 1% of the population of America account for about 22% of the national income, while the lowest 20% account for just 3% of the national income. I feel the government does the best it can to redistribute this income to those in need, namely the lower income groups. Because the wealthy have so much, they can afford to pay a larger percentage than the lower income groups. One of the 4 canons of taxation is taxes must be levied based on ability to pay. This system I believe is effective in achieving this goal.
Jack.ecslb.f09
I definitely agree with your point on the rich paying a larger proportion of the total tax. When a person is pulling in $10,000,000 a year, they can definitely afford to live on $6,000,000-$7,000,000 of that, or even less. However, a person who is making just $20,000 a year cannot afford to keep just $14,000. Taxation should be based on ability to pay.
1. Based on the data above, do the rich in America pay an unfair proportion of the total taxes the US government collects? Why or why not?
This question is likely to have different answers for different people, as it is mainly one of opinion. For me, I do not believe the rich in America pay an unfair proportion of the total taxes the US government collects. The question requires a definition of fair, because it is not the same for all people. Some might say that the rich pay more than is fair based on the greater percentage for their income, but some might say that the rich are able to give up a greater percentage of their income to taxes and still be able to live quite comfortably.
2. Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?
The amount of income that is required to be in the top 1% means that even a lightly lower taxation rate will still amount for far more money than the lower categories. This means that while there may be more people in the 5% below the top 5, the amount of money present in the top 5% is still far greater.
3. How much of America’s total income is earned by the richest 1% compared to the poorest 20%? Does America’s progressive tax system destroy the incentive for Americans to work hard and become rich? Why or why not?
The richest 1% of Americans earn roughly 22% of the total income of the United States, in comparison to the 3% that the poorest 20% of Americans earn collectively. This is particularly astonishing because it means that the poorest 20% of Americans collectively earn 3% of America’s income, while the top 1% earns over 7 times that much. However, it cannot be said that America’s progressive tax system destroys the incentive for Americans to work hard and become rich because the level of disposable income of the richest 1% is so much higher than that of the poorest 20% that the percentage of taxes that they have to pay makes much less of a difference.
4. Does the gap between the richest and the poorest Americans surprise you? Do you think that America’s tax system is effective at re-distributing the nation’s income? How does it succeed? How could it do better?
Overall the gap between the classes does not surprise me that much. I think that Americas tax system is fairy efficient at retribution the nations income, its success can be seen through all of the government programs being funded by taxes. One discrepancy is the slight downward turn of the tax percentages when they reach the highest 5%. I think that this is one issue that needs to be addresses.
1.Based on the data above, do the rich in America pay an unfair proportion of the total taxes the US government collects? Why or why not?
- The rich in America do not pay an unfair proportion of the total taxes the US government collects. I very much agree with Jack on this point. Although the rich pay a larger amount of money in taxes, they also have a far greater income than others. In fact, I would say the taxes could actually be raised on the rich. Their net income is still astronomical and the strain can be lifted from the lower income groups.
2.Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?
- The richest 5% in America pay a lower level of tax on average than the 5% below them because their income is so much greater that they are still paying more money but are taxed a lower percentage.
3.How much of America’s total income is earned by the richest 1% compared to the poorest 20%? Does America’s progressive tax system destroy the incentive for Americans to work hard and become rich? Why or why not?
- The richest 1% earn 22.5% of America’s total income while the poorest 20% only earn 3%. I don’t the progressive tax system destroys the incentive to work hard and become rich because although the rich pay more, they are still rich. By breaking into the higher grouping, a person is still maing far greater net income.
4.Does the gap between the richest and the poorest Americans surprise you? Do you think that America’s tax system is effective at re-distributing the nation’s income? How does it succeed? How could it do better?
- The gap between the richest and the poorest Americans does not surprise me. This is the product of a nation which feels such a great pride in its capitalist system. The current tax system does not effectively re-distribute the naton’s income and in my opinion there is a lot of room for the taxes on the rich to be raised and perhaps even lighten the taxes on the lower income people.
Robbie.ecslb.f09
I like your answer to number 3. When you break it down with peercentages like that and show the great imbalance in net income it really becomes absurd to think people would reject making more money.
1) In my opinion, only the top 1% of the country pay an unfair proportion of the total taxes the US collects. However, when comparing the “next 10%”, “next 5%” and “next 4%”, to the “middle 20%” and “fourth 20%”, we can see that they all pay roughly the same proportion of tax, showing that their amount of tax is fair. However, when looking at the top 1%, we can see a significant increase in the proportion of taxes paid. Especially considering that this is only 1% of the country paying, I don’t think that their proportion is fair; instead it is too high in my opinion.
2) It appears as though the richest 5% of America pay lower taxes than the 5% below them, however, we must not forget that they are the 5% of America’s richest people, so ever though their percentage of income is lower, the actual value of how much they tax they pay is still higher. I think of they would have continued to raise the tax level for the richer, then the distribution of tax paying would have become even more uneven. Rich tax payers might have lost incentive to work in America and decided to work or live in other places where taxes are cheaper if America’s “rich taxes” were even higher.
3) The richtest 1% add to around 20% more income than the poorest 20%. However, I don’t think that the progressive tax system destroys the incentive for Americans to work hard and become rich. This is because if they work hard, their total tax might increase, but so will their income. In total, their income with higher taxes will still be higher than the lower income with lower taxes. Also, when getting to the top of America’s richest people, the percentage of income to pay as tax also decreases, as mentioned earlier. This again gives incentive to work hard, knowing that taxes will be lower if income increases.
4) This massive gap really surprised me, especially the fact that 1% adds to 20% more income than 20% other percent of the country, is especially shocking. I think that the tax system is slowly effective at redistributing income, because the poor have to pay less, allowing them to spend more money on their living, while the rich have to pay more. In that way it succeeds. However, I think it could do better in the division of the total taxes paid. I think the fourth 20% should be paying a smaller amount, as well as the top 1%, while the Next5% and Next 4% should be paying slightly more to make the graph a nice line to fit balance the fairness of the total taxes paid.
To Celine,
It was nice to read your answers. I especially agree with you on the point you made in number 3, I wrote the exact same thing. However, I disagreed with your point number 2. I think that rather than protecting their wealth, the richest 1% have to pay a smaller percentage of their income to balance out their share of the total income. Let’s say the top 1% would have to pay 34% of their income to taxation. This would mean that they would pay for an even larger portion of the government’s income, making the distribution unfair. If distribution is unfair, the rich might decide to live somewhere, where taxes are lower. This is also the exact reason for why I disagree with your point 4, where you mentioned that the top 1% should pay a larger percentage of their income to tax. I think there is a very fine balance between what is acceptable for everybody. If things are not acceptable, people will start looking for other solutions for themselves, and the government will make a loss or at least have a smaller income. Therefore I don’t think taxes should be increased for the top 1%.