Nov 08 2012

Tax progressivity in the US: Do the rich pay more than their fair share? The evidence indicates NO!

Just How Progressive Is the Tax System? – Economix Blog – NYTimes.com

According to a blog post in the New York Times from April 2009, America’s America’s “progressive” tax system is not as progressive as many may believe it to be:

Research has found that many states and local governments have… regressive tax systems… that might offset the progressiveness of [US] 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:

In the graph above, the horizontal axis shows the income group. The 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 article continues:

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:

The 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.

The research discussed above poses several interesting questions about the make-up of a nation’s tax revenues. Despite popular belief, it appears that the rich in America do not pay “more than their fair share”, as many argue is the case. Study the graphs carefully, and answer the questions that follow:

Discussion Questions:

  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. Use the data to construct a Lorenz Curve for the United States. Does the gap between the richest and the poorest Americans surprise you? What kinds of changes could be made to the tax system to narrow the gap between the top income earners and the middle and low income earners in America? Should this be done, why or why not?

About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

131 responses so far

131 Responses to “Tax progressivity in the US: Do the rich pay more than their fair share? The evidence indicates NO!”

  1. Merve_Akpinaron 19 May 2011 at 1:16 pm

    @Michael

    I liked your answers especially the third one. You also beleive that tax system is a progressive one. Even if the richest people are paying highly much it is fair because they are earning highly much.

  2. Bryan_DiLauraon 20 May 2011 at 8:22 pm

    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 don't think that the rich are paying an unfair proportion of the total income. To explain this, I will show what I mean in the context of each graph, individually. For the first graph, we can see that America is on a progressive scale of taxation, with the richer paying more, while the poor are paying less. However, we can see that near the really high end of the income groups, that their proportion goes down. So in fact they are paying less than they supposedly should. In the second graph, you guys are getting too hung up on minor things here. The whole idea of a progressive tax is to try and even the distribution of wealth, which is what is being done here. The rich are being taxed more, and are contributing more of the tax than the poorer people, leading to less money for the rich (but they have tons of it so it doesn't really matter) and more for the poor (who sometimes have a hard time buying food). So overall, I think that the rich are paying a totally fair proportion of taxes.

    Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?

    I think this can be for many different reasons. First of all, the progressive income tax system has a hard time taxing them as there is such a big difference of incomes for these people. Both bill gates, and some other random person who earns a lot of money fit into this band, which means there could be a large gap in the amount of income. Also, the way these people earn their money can sometimes be unorthodox, making them harder to tax (like just earning interest, foreign business affairs etc.). Finally, many governments have some regressive taxes, like sales tax, so these don't effect the super rich nearly as much, leading them to pay a lower percentage of their money.

    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 poorest 20% of the population earns less than 5% of the total income, when the richest 1% earns almost 25% of the total income. Although the richer people pay more of their income towards taxes, you don't see really rich people living in cardboard boxes in the streets, the fact is that they have more to give. I think that this question is focusing on the wrong thing, it isn't taxes that is the incentive for Americans to work, it is their standard of living. It is just common sense that if you earn more, you have a higher standard of living. Taxes play a part in that, as they take some money away, but it shouldn't be the main focus.

    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 rich and the poor in America doesn't really surprise me, as I live in America, and I see this everyday. I see people begging on street corners, and yet I also know that there are big CEO's that live in America as well. I think that America's tax system is doing an OK job at re-distributing the wealth, however it can do much better. It has a true progressive system, taking more from the rich, and less from the poor, but I think that they should go to further extremes on both sides. This will increase the standard of living for everyone in the country, rather than just having all the good stuff for the top 20%.

  3. Bryan_DiLauraon 20 May 2011 at 8:25 pm

    @Merve_Akpinar

    I disagree. I think that the rich are paying just as much as they need to, if not less. They have much more money to give, and will feel less hurt from giving up the money, when compared to to a much poorer person. The government's goal is to help all of the people it governs, not just the select few at the top.

  4. Melis_Selin_Tatlicanon 20 May 2011 at 11:49 pm

    2) 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 above, rich people pay an unfair proportion of the total taxes the US government collects. Because government collects the data according to the incomes of the families but the ratios are changeable. So there should be a balance in order to make these taxes fair.

    3) Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?

    I is about population. The number of rich people which form the 5% of rich people in America is actually lower than number of people who are below than 5%. So that, these people have more money and pay more as taxes.

    4) 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 taxes have no balance according to the income of the people. Yes rich people are earning more money but they are also paying lots of money to the government. This situation discourage rich people to work for their country so we can say that, America’s progressive tax system destroys the incentive for Americans to work hard and become rich

    5) Use the data to construct a Lorenz Curve for the United States. Does the gap between the richest and the poorest Americans surprise you? What kinds of changes could be made to the tax system to narrow the gap between the top income earners and the middle and low income earners in America? Should this be done, why or why not?

    The gap between richest and the poorest Americans did not make me surprised because we can see the difference from the distribution of the taxes. It is occurred according to the income of the society. This can be proper for the incomes of the people but this difference should not be that much high in order to save both poor and rich people for the benefit of the country.

  5. Melis_Selin_Tatlicanon 20 May 2011 at 11:51 pm

    Hi Merve, ? agree with you about your answers to the questions. I like the way you think about taxes and the income.

  6. Dilan_Guneson 21 May 2011 at 12:28 pm

    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, according to the data above rich in America don’t pay an unfair proportion becuase the system for paying taxes has been arranged. For example; because the income of rich is more than the income of the poor the rich one will pay more.

    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. For making the equilibrium in balance government make an equal distributing of taking money. Government should increase taxes for poor people having less income and by this poor ones pay almost the same amount of money as rich ones do.

    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?

    There is a huge gap between the amount gained from rich people and poor people even though the percentages are far different from each other too. America’s progressive tax system don’t destroy the incentive for Americans to work hard and become rich because even though the rich ones may a lot they are still rich and have more than enough money to survive. On the other hand, as answered in the third question there are more taxes on poor people for make the amount the same with the rich ones.

    4. Use the data to construct a Lorenz Curve for the United States. Does the gap between the richest and the poorest Americans surprise you? What kinds of changes could be made to the tax system to narrow the gap between the top income earners and the middle and low income earners in America? Should this be done, why or why not?

    It surprised me and confused me a little bit. The new tax system can be efficient for redistributing the income. Normally the progressive tax system is taking more money from the rich ones. I think putting more taxes to poor people for taking exact amount of money from everybody will make poor ones poorer so I don’t think that will narrow the gap.

  7. Dilan_Guneson 21 May 2011 at 12:32 pm

    To KangSan Keum,

    I liked your ideas they are short but meaningful on the other hand I also think that the tax system is fair enough because if poor adn rich pay the same amount of money then the poor ones will be poorer or worse than that.

  8. Jackson_Moteon 23 May 2011 at 2:38 pm

    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 above, the top 25% of Americans pay an unfair proportion of the total taxes the US government collects. This is evident in the second bar graph titled Shares of Income and Taxes Paid. In this graph, you can see that the purple bar which represents taxes in higher than the percent of income received. This means that the top 25% pay too much in taxes.

    Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?

    This is because tax cuts that were implemented by President Bush give the richest individuals in America tax cuts therefore leading to lower taxes or at least a lower percentage of income paid within these privileged individuals.

    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 receive nearly double of the percent of income compared to the poorest. Yes, it poaches off of individuals hard work and determination. I agree with taxes, but just because someone chooses to do well in school and be successful does not mean that they should be unfairly taxed.

    Does the gap between the richest and the poorest Americans surprise you? What kinds of changes could be made to the tax system to narrow the gap between the top income earners and the middle and low income earners in America? Should this be done, why or why not?

    No, the gap does not surprise me. Use fiscal policy to aid the lower income individuals while keeping the hard work of the high income individuals intact.

  9. Jackson_Moteon 23 May 2011 at 2:40 pm

    @Sondos2

    I disagree with you regarding the richest Americans and taxes. As seen in the second graph, the high income americans do pay more percent of the total taxes than the lower 75% of americans. The purple bars are higher than the blue bars in the top 25% supporting this.

  10. Dogan_Can_Ozcanon 24 May 2011 at 6:17 pm

    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 based on the data above, rich people pay an unfair proportion of the total taxes the US government collects. Because if we look at the graph we see that really rich people pay only 25% of their income. Rich people pay 16% of their income and poor people pay 5% of their income. When we consider about the economic level of US we can see that rich people have very high life standards so they should pay more taxes than poor people because of this I think it is unfair.

    Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?

    *The most important reason for this is population. The people who are in that 5%, get higher wages. Because of this they pay more taxes.

    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?

    *1% of rich people give 21% of their income. 20% people give 5% of their income. I think America’s progressive tax system destroy the incentive for Americans to work hard and become rich. Because if government gets more taxes from rich people this means government will have more money and they can give more money to the poor people(help).

    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 didn't make me surprise because all of the people in the world know that there is a huge difference between rich and poor people in America. This is because of the income. For example rich people earn more money than poor people. So they pay more taxes than them. I think government should take more taxes from rich people. Because poor people pay most of their money for their taxes. If government takes less money from them they will have more money in their hands. So this means government will be giving a chance to poor people to become rich.

  11. Dogan_Can_Ozcanon 24 May 2011 at 6:19 pm

    @Jackson_Mote

    Good answers, I liked your opinions but for the 4th question I think if you give some examples from the graph it would be better.

  12. Nesibe Z?rzak?ranon 24 May 2011 at 7:30 pm

    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. As seen in the graph, the amount of taxes that riches pay is proportional to their income. Rich people are more wealthy and have better life conditions which make them pay more. In a way it is unfair but the money that poor pays with respect to their income matches with riches.

    2. Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?

    That's because those people have such place in economics that contributes more than income. If they pay higher taxes, this would be incentive for them to reduce their investment which is bad for growth. So government considers this. This is also to regessive taxes as stated in the article.

    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?

    It in a way destroys. Rich people already have consistent level of wealth and do not have such worries for future. Also from poor's side, poor people are discouraged and they lose their confidence to work harder because they see that their income is at the same level, always.

    4. Does the gap between the richest and the poorest Americans surprise you? What kinds of changes could be made to the tax system to narrow the gap between the top income earners and the middle and low income earners in America? Should this be done, why or why not?

    It did not really surprise me. In US, the tax system is doing well but I think more serious initiatives should be taken for it. Yes, the re-distributing wealth is going good because rich pays as proportinal to their income but this seems not enough. Rich is getting richer and poor is getting poorer. Maybe imposing extra taxes to riches whould help the balance system to be set.

  13. Cleon 25 May 2011 at 1:51 am

    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?

    Yes, because the rich are so disproportionally ricer than the poor that they should have to pay the disproportionate amount of taxes. Some people are earning massive amounts of money, that they could never spend, some of that should be heavily taxed.

    Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?

    Because the top 1% pays a high tax but the net 4% don’t they pay a much lower tax then the top 1%.

    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?

    No, America's progressive tax system does not destroy the incentive for Americans to work hard and become rich, because the tax in the rich isn't that great compared to how much they earn.

    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 surprises me a little, i knew that there was a gap, but the width of the gap is so huge, it seems that there sould be a little more re-distribution of income. I think that the richest citizens ar emaking way more than they could ever possibly spend, and that they could stand to have a lot less. I think that the government should have a higher tax on the richest 5%, and have them pay at least 5% of their income to either the government or Charitys.

  14. Cleon 25 May 2011 at 2:11 am

    # Talia_Greene

    I agree with your opinion about the progressive tax system in america. the problem with taxing the wealthy in america, is the wealthy give lots of money to political campaigns, and so if the elected officials want to say in office, they cant make the people who give them money mad.

  15. John Bianchion 24 Aug 2011 at 11:35 pm

    Mr. Welker,

    Although I personally believe in a regressive tax structure, I wonder if the graph presented accurately reflects the Top 1%'s contribution to society as a result of their income, beyond their taxes. In U.S. tax structure, persons that earn under a certain margin (about median income) have little tax incentive to utilize deductions (such as the charitable deduction), while top income earners are heavily encouraged to take advantage of deductions that may benefit society in other ways.

    For example, If a person earns $10M per year and donates $1M to charity, they receive a tax break of $300,000 or more…a strong incentive to donate to charity. Meanwhile, a person who earns a mere $35,000 per year would not benefit from donating the same percentage of their income ($3,500 in this case) to charity, as they would receive a tax break of $0.

    I would be very interested to see, of the Top 1% earners, the breakdown of their tax deductions.

    Regards,

    Mr. Bianchi

  16. Matthew Burnhamon 28 Aug 2011 at 4:50 pm

    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?

    Yes, with the vast amount more money that the rich have, which is more often than not, not being spent on anything. They should be taxed proportionately to their wealth instead of the poorer income earners who pay more. A tax on their wealth would benefit the government and allow for greater spending in the future.

    2. Why do the richest 5% in America actually pay a lower level of tax on average than the 5% below them?

    This is because of their higher income. If the top 5% where to pay the same as the rest on their income, they would be paying a proportionately much larger sum of money each time. The lower taxes is to keep equality in the sense that the top 5% aren't paying the most taxes and the poor the least but a more equal sum of money coming from each person.

    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 percent of income groups in America pays about 23% of American taxes, while the poorest 20% only pay about 3%. This tax system in a way demotivates the poorer to work harder and gain more income because for them their taxes will only ever increase. For the rich however the taxes on them are fairly stead and because they are already the richest their taxes will never be that much higher. Only get lower if they happen to lose all their money.

  17. Penelopeon 29 Aug 2011 at 6:22 pm

    Based on the data, I think the rich in America do pay an unfair proportion of the total taxes the US government collects. America has a progressive tax, which means that tax increases as income increases. As a result, the top 1% has to pay over 20% of their income in tax to the government, whereas those in the lowest 20% only pay half of what the top 10% have to pay. Because the rich have the ability to live comfortably paying 20% of their income, they have to bear a larger burden of the nation’s total tax receipts when the lower income households are paying a lot less tax from a smaller percentage of the income, which is unfair. The richest 5% in America pay a lower level of tax than the 5% below them because of their type of income. Roughly 23% of America’s total income is earned by the richest 1%. This destroys the incentive for Americans to work hard and become rich to a degree; because the more they earn the higher percentage of their income they have to back to the government, which doesn’t benefit the rich. However, the rich make enough money for the 20% they have to pay back to the government not have a large effect on their lifestyle and it would be more beneficial to them to pay earn more and pay higher taxes than to be poor and pay low taxes. Compared to the rich, the poorest 20% collectively earn about 3% of America’s total income.

  18. Nathan Pinnockon 29 Aug 2011 at 8:26 pm

    I believe that a progressive tax is the correct method of taxation for a nation. The rich are able to pay higher taxes, and they should if the nations best interests are put forward. The poor must pay taxes too however. Taxes allows for the government of a nation to pay for public goods such as health-care and education, which will allow for the poor of the nation to learn the skills that are required in the labour market. These taxes will allow a way for the nation to become both more efficient, and more equal (more people are entering the labour market, and their average income is increasing, allowing for a way out of relative poverty).

    Although some people may say that the higher taxes on the rich is 'unfair', the rich have other opportunities to make profit, such as investment in stocks, which are not available to the poor, and are not taxed heavily, allowing for the rich to make up what they lost to taxes in of their wages.

  19. Alexandre Kon 30 Aug 2011 at 4:48 pm

    Although it may seem unfair that the top 5% earners pay a lesser proportion of their income in taxes compared to the previous 5%, it is probably due to the fact that their income might come under different forms such as 'stock earnings', or 'profit', which is taxed differently. I believe that the top 5% rich Americans should not be taxed much more heavily, as they often are in command of large companies and provide jobs for many other Americans. Those people should clearly be taxed at a high rate, but also often pay taxes through their company, which also accounts for some tax receipts for the U.S. government. The U.S. government should also be particularly careful as to increasing tax rates. Potentially, this could lead to some capital flight, which could not be prevented, and would clearly not benefit the American government. Therefore, should taxes really be much higher on the richest Americans?

  20. Emmaon 30 Aug 2011 at 9:04 pm

    I agree with Alex that is does seem a little unfair that the absolute richest and paying a lower percentage of tax, if only by a tiny amount than the income bracket below them. However this could be seen as a very slight incentive for people to try and earn to become that top percentage on earners. When the rich have a much higher tax rate it decreases incentive to work hard to make that much, therefore causing inefficiency. The difference is very small, but when it is being taken as a percentage of a half a million dollar income, 1.3% doesn't come out to such a small amount anymore.

    For the progressive tax to be effective it has to be set at the right level. If the percentage tax increases too steeply it will cause inefficiency in the work force. However if set well I think it is very effective and gaining good revenues for the government and keeping society slightly more equal.

  21. […] I said the uber wealthy pay the top rate on LIKE income Do you have a problem with obtusement? Tax progressivity in the US: Do the rich pay more than their fair share? The evidence indicates NO! do you not understand that earned income, dividend income and long term capital gains income are […]

  22. Chris Bon 30 Aug 2011 at 9:36 pm

    Personally, I believe that a moderately progressive tax system would be the best option for a government. As the rich Americans earn a higher income, it won't make much of a difference if they have to pay a tax that is slightly above their fair share. In addition, rich households can make investments and in return make capital gains or earn dividend which are generally taxed lower than normal income. On the other side, this gives poorer households an opportunity to haul themselves out of the relative poverty. Furthermore, poorer households can invest their money as well and therefore obtain even lower taxes in proportion to there income. I am sure that not everything a poor household spends would be seen as a necessity (big car, big house). The higher taxes on the rich means that the government can supply better education as well as health care which in return means more people are capable of working which increases the efficiency. However, I would say that governments are generally not good allocators of money. Often times, money ends up in the wrong hands(wrong allocation or too high salaries for government officials) no matter who is in power. If this were minimized or eliminated, the poor as well as the rich would benefit in the long run. The poor will have better opportunities to get richer and the wealthy gain more money as firms can increase their efficiency due to a better educated work force.

  23. Nathan R.on 30 Aug 2011 at 9:51 pm

    I think the progressive tax system needs to be reworked so that each income bracket pays a higher percentage of their income on their taxes then the one before. The richest one percent should be paying less tax then the 4 or even than the 10% below them. And like the article proves, even if the progressive tax was to be revised in the United States so that the rich pay more, they would only be paying their fair share. Now, some may argue that everybody should pay a fix tax rate, but this does not promote equality or even equity in income. In a country where there is a fixed tax rate of 30% people who earn $100 spend $30 tax while people who earn $1,000,000 pay only $300,000 in tax, which speaking in terms of relative usage of disposable income is a lot lower for the richer than the poor. This also counters the argument that higher taxes discourage the rich from working. Having a real progressive tax rate will certainly increase the tax-burden on the rich but a billionaires drive to work is not going to be stopped because he has to pay 100,000 more dollars to the tax-office. Either way, tax on income is a lot higher than that on investments, which is where some of the richest of the rich get their income from. So even with a real progressive tax system, the rich would have a lot lower tax-burden than the poorest 20% of the population. So I don't agree that raising the tax on the rich would decrease either their incentive to work or the incentive to reach their level of income because, relatively speaking, tax burden always seems smaller when you have a lot more disposable income.

  24. Karen.Leungon 24 Oct 2011 at 10:18 am

    From the article I observed that the top 1%rich pay almost 25% of the tax in America. It seems unfair for the rich when we just look at the data. However, when we take a further consideration, it’s fair for the whole society. They own the most wealth of the society so it’s fair for them to pay back to the society. With the progressive tax, the income inequality can be minimized. The society can use these taxes to build the road, set the public transportations, and give the subsidy to the poor. All of these actions are good for the whole society and do well to the economic growth.

    I think one of the possible explanations for the phenomenon that the richest 5% in America actually pay a lower level of tax on average than the 5% below them is a small percent of the 1%rich is equal or even higher then the large percent income of the people in the next 4% below them. It’s a question about proportion. The proportion may be less but the actual number is higher.

    The first 1% in America earns almost 22% wealth of America, having a big divergence with the low income group which 40% of them only earn 10% of income in the US. I think the progressive tax won’t destroy the incentive for the Americans to become rich since they remain lots of money themselves after paying the tax. That’s say, the rich still rich after the tax and although the low incomers pay the low tax they are still much poorer than the rich. No one would not stop trying to being rich just because the tax.

    The big gap between the high income and the low income really surprise me. I believe that there must be some difference between the rich and the poor but I do not think that the gap is so big. I think the progressive tax is efficient. From one side, the government can get most of the money they need from the rich for the development of the society. Form the other side, the government gets less proportional tax from the poor which can help them to save more money and gradually become rich.

  25. sbroughtonon 26 Mar 2013 at 4:22 pm

    1. Summarize the argument against a government taking measures to redistribute its nation’s income to reduce the level of inequality between the rich and the poor.
    The real reason this argument is made is because a large enough portion of earners in the higher income bracket do not want the government to take the money from their work and their effort and then give it to someone who may be less deserving. Beyond this, though, some economists also believe that the gap between rich and poor actually improves economic progress because it encourages those earning less to be more productive in order to achieve a higher income. Of course, this theory and others like it have been disproven by many studies and statistical analysese, including the one mentioned in the article.

    2. Summarize the argument for a government reducing inequality.
    Multiple studies that have been done on the economic theories of “trickle down” and “rising tide” came back with results indicating that neither led to greater economic prosperity. The idea that a free-market can do just as well, if not better, without any government influence to keep the allocation of resources and income properly distributed has been disproven time and time again. The core of this problem comes from the fact that, when rich people get richer, they don’t just start throwing their money at the poor because they have enough to, they find other ways to spend it. That can include buying imports or just not spending it at all and saving it for as long as they can. Even if they did have enough extra money to make same large group of people richer, why would they? It’s in their best interest to keep competition low and employee wages even lower. That way, they never have to worry about something like profit margin.

    3. Popular belief holds that “a rising tide lifts all boats”. In other words, if the total income of a nation is increasing, it does not matter if the rich are enjoying a larger percentage of the higher income than the poor and middle, because everyone is likely to be better off than if total income were not growing at all. Does the study discussed above support this popular view? Why or why not?
    The study above does disprove this. The reason the “rising tide” theory doesn’t work is because it assumes the same thing trickle down does, “If the rich a bunch extra money, they’ll spend it on domestic products and employee wages”. The problem is, they don’t. As I said, it’s in the rich people’s best interest to keep wages low so they don’t have to worry about their profit margins. They can buy imports from other countries and, even they do buy domestically, most of that money is going to go to the rich, business owners and not the workers. Why? Because the wages are so low!

    4. What measures can a government take to assure that higher national income leads to higher standards of living for everyone in society, including the middle class and the poor? Why might the highest income earners be opposed to such attempts by government?
    To ensure a greater distribution of income, the government can set additional tax regulations for citizens within a certain, higher income bracket. They can then take the money earned from that and use it to subsidize companies that work to improve the lifestyle of poorer citizens and give money to those in the lower income bracket or who are less capable of doing work. However, the highest income earners are opposed to this because, as I said before, they don’t like the idea of the government taking the money they earned and giving it to whoever needs it, even if the person that gets the money never tried to work hard and improve their quality of life, anyways.

    5. Should government intervene to reduce the level of income inequality in society?
    Yes, and for two key reason. First, because greater distribution wealth means greater economic prosperity and greater economic prosperity, with government intervention, actually means greater income overall. Second, because the whole of economic progress to give everyone a better quality of life but, if we can only ensure that better living for 10% of the population, then what’s the point?

  26. sbroughtonon 26 Mar 2013 at 4:30 pm

    @Nathan R.

    I like the way you think, and that’s the same way I feel. Although, I assume you mean that richest 1% should pay more than the richest 10%, right? There should just be a logical stair-step system where income tax goes from nothing to something like an extra 5% every $50,000 or so that you make more. You’d essentially just have these simple intervals where people in higher income brackets would be taxed more but there would still be a higher net income than the net income for anyone getting paid less than them. Before we can setup a system like that, though, we should probably find a way to prevent those rich 1% or 10% from putting all their money in tax havens and off-shore accounts.

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