Friday, February 27, 2009

"Tax Rates of the Rich and Poor"

Greg Mankiw shows the effective tax rates for 2005 by income level and declared:

That is, even before the Obama tax hikes, the rich face average tax rates more than twice those of the middle class, and about seven times those of the lowest quintile. These data do not tell you the optimal degree of tax progressivity, but they do describe the starting point from which policy is working.
While I have no problem with him stating these are the "starting point" rates, let me put them into a little more context... i.e. compared to when rates really were alarmingly high.

While this next comment may not make much sense to some as someone well off, I have absolutely no problem paying higher effective taxes than someone who happens to have a lower income (though I do have major problems with bailouts of speculators). The difference are the rules are straight forward and most of all logical (the cost of living as a percent of income is substantially higher for low income individuals). As someone who did not grow up with a silver spoon in my mouth, rather than be angered at paying more taxes because I happened to be more financially successful than others, I just hope these higher taxes open up all the opportunities for someone born into a low income family that were handed to 90% of my business school classmates and co-workers.

Source: CBO