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


  1. People who complain of high INCOME tax ignore TOTAL tax burden as a percent of income. Payroll taxes increase the tax burden on lower incomes and reduced tax rates on capital gains and dividends reduce the tax burden on higher income.

  2. Hmmm...Hadn't realized how much effective tax rates had been cut over the last generation. It seems that the last cut literally bent over backwards to "ease the pain" on the upper most band of taxpayers.

    I can't complain about my taxes given what I receive in goods & services (& promises of more to come in later years). I clearly see why the new administration wants to raise taxes on the upper most groups

  3. So by saying that we've got plenty of room to increase tax rates because they happened to be higher in the 70s is claiming that the tax structure in the 70s was an appropriate one. What a stupid notion. Anyone remember inflation, a horrific bear market for stocks, and stagnant economic growth? Anybody? Granted taxes weren't the only cause of these problems, but they certainly didn't help. Terrible post.

  4. Also, the title of this post is misleading. It essentially assumes that everyone in the lowest percentiles are "poor" when anybody with even a basic background in elementary economics will tell you that income CHANGES over time for the majority of society. In other words, a large percentage of the people making $30,000 today are entry-level professionals who will become executives in 20 years. This was a stupid post.

  5. Anonymous said...
    You sound like one of the douches born with a silver spoon who never earned his/her own money and is now scared the tax man is going to take your only source of income - which is whatever your family has been passing down. Talk about a stupid post:
    1. Blaming the economy on the 70's for a high tax burden!? Anybody hear of the massive growth of the 50's and 60's? Do you know what the taxes were then? Anybody? Anybody? Anybody here of the massive depression we are about to enter with the lowest taxes since the turn of the century Anybody? Anybody?

    2. Your second post proves you are a spoiled cunt. Guess what else rises as you get older besides income? The cost of supporting a family. Yeah, most people don't stop at 30 K they move all the way up to 50k (the median household income). That is HOUSEHOLD. Meaning the total of the breadwinners in the family that is also required to support kids. Anyone with a 'elementary knowledge of economics knows this'. To put it in context for you it is probably about a third of what your trust gives you every year or what your prep school costs per year. That is also - before taxes.

  6. well said Jake,

    the country needs more people like you.

    unfortunately this society has become about "me" and "more".

    the odd thing that i (as an atheist from eastern germany) don´t get: everybody is claiming to be religious. but when it comes to living after the bible, which by word means taking care of the weakest, many wealthy and a whole party suddenly don´t care at all.

    and to those referring to supporting the kids:

    if the state isn´t allowed to raise taxes it has to increase DEBT.

    the deficit can´t grow forever.
    some generation will have to take the pain.

    so by refusing to pay higher taxes you´re effectively make a living on your kids future!

    everybody who has been given the chance to lead a middle class or better life should be thankful.

    thankful that he was born at this time, in this country, into these circumstances.

    by bad luck you could also be born into world war II, in africa or simply today as one of five childs in black low income american family and you´ll never get the CHANCE to make it up, no matter how hard you try, because you don´t have access to basic needs like healthcare or good education.

  7. Dom: Wow you really nailed me! It's amazing how you're able to effectively judge every single person who happens to make more money than the median household!! I'll be you're really successful with skills like that! Or maybe you're just a douche that doesn't want to believe that there are people that independently pay their way through private college, grad school, and the CFA program by their 25th birthday. Artificially painting an entire segment of the population with the same ignorant brush will really make a difference...

  8. well then... looks like the first post on econompic with some true hatred since its inception almost a year back. makes me proud.

    anonymous. your insult of the post title makes it clear you didn't realize it was in quotes and taken directly from greg mankiw's post (it was meant to point out that it was misleading).

    your quote "Or maybe you're just a douche that doesn't want to believe that there are people that independently pay their way through private college, grad school, and the CFA program by their 25th birthday" makes it seem like that is the norm. although i actually do fit that exact description, i also became painfully aware at how small the # of colleagues of mine did too. in fact, i'd say 90%+ were in fact born into wealth and opportunity that most of my friends (who happen to be significantly smarter in my opinion) ever had.

    if the system can change so that when everyone born into this country / world has that same chance, then fine... don't increase taxes on those better off. the simple fact is that is an impossibility. thus, the only solution IMO is to flat out "share the wealth" which ends up benefitting those well off just as much.

    it also isn't surprising that someone like you stated it was a "stupid post" (and anonymously)rather than thanking me for all the free information i've provided you over the past year... kind of puts everything in perspective

  9. Anon- I don't paint whole swaths of people and definitely not people making more that 50K a year. Only people who leaving snotty comments on Blogs that are not logical and demonstrate severe ignorance.

    So you independently paid for 6 years of private college by the age of 25? That means you didn't take any time off for work. Interesting: Lets say the average private school costs 30k a year. Maybe you worked but that would only really pay for living expenses. That would put you in the whole about 200k once interest is taken into account.

    Can you use your CFA to figure out the NPV of those locked 4% student loans an average inflation rate of -3 percent over the next 10 years? sucks to be you.

    Hopefully, when you said 'independently' paid your way through school you meant you 'independently' made the decision to spend money someone else gave you on college.

    As for me? I am not going to get into a pissing contest about personal accomplishments. But I am wise enough to realize most people who enter the workforce do not end up executives. So I got that going for me (and I don't have huge student loans...)

  10. Dom: It's called a full-ride scholarship. They tend to give it to intelligent people. There was never a need for me to even discuss getting help from anyone for my education costs.

    Jake: I agree that it isn't the norm. However, believing that politicians can effectively reallocate resources in the economy is overly optimistic. I wish altruism was a viable system, but history has shown that the motives of politicians who claim to be for "fairness" and "equality" only end up doing harm.

    And thank you for the posts over the past year, but while I appreciate them that doesn't mean I'll avoid voicing my dissent to things I disagree with. After all, to form a truly intelligent opinion one must truly ponder all sides of the issue (which we all, especially me, have a hard time doing).

  11. Full ride scholarship? I can't argue with that so I guess you win! And it seems like you learned a lesson to not be so rude when posting. So that makes us all winners!