Imagine a very tiny country. Very tiny. Five people. Four of them make $100 a year. One of them makes $1,000 a year. Tinyville, however, has a regressive tax code. The four poorest are taxed at 30 percent of their incomes. The richest is taxed at 20 percent. Here, essentially, is the taxation scheme in Tinyville:
The single richest resident thus accounts for a startling 62 percent of the country's revenues. But he pays a lower rate than his countrymen. Which gets to an issue that came up in comments yesterday: How do you assess tax fairness?The metric I used was effective tax rate. Commenter JT insisted that that was bunk. "What is a comparison of share of income with effective federal tax rate supposed to mean?" He asked. "The relevant tax statistic with respect to SHARE OF INCOME is SHARE OF TAXES, not effective tax rate."You often hear the term "tax burden." Not tax share, but "burden." It's a useful way of thinking about it: "Burden" is a relative experience. A strong person carrying a 50 pound bag may feel less burdened than a weak person carrying a 20 pound bag. Taxes are similar: Progressive taxation is based, in part, on the idea that the rich should pay more, but also on the idea that they can pay more.Here's how that works out in real life: The average after-tax income of the average person in the middle income quintile is $52,100. That's down from about $60,700 after an effective federal tax rate of 14.2 percent. In the top quintile, the after-tax income is $184,400, down from $248,400 after a 25.8 percent effective federal tax rate. The rich person certainly pays more, both in absolute terms and as a share of income. But is their burden greater than the middle-income taxpayer left with $52,100? It's hard for me to see how.In any case, here's an updated graph of tax rates. I've added share of taxes to the mix. But I've also added share of after-tax income to better illustrate the real-world hit different income quintiles are taking. As before, all data comes from the CBO.
And be warned: This isn't even the last tax graph I'll post today. You folks are so lucky to read this blog!
The single richest resident thus accounts for a startling 62 percent of the country's revenues. But he pays a lower rate than his countrymen. Which gets to an issue that came up in comments yesterday: How do you assess tax fairness?The metric I used was effective tax rate. Commenter JT insisted that that was bunk. "What is a comparison of share of income with effective federal tax rate supposed to mean?" He asked. "The relevant tax statistic with respect to SHARE OF INCOME is SHARE OF TAXES, not effective tax rate."You often hear the term "tax burden." Not tax share, but "burden." It's a useful way of thinking about it: "Burden" is a relative experience. A strong person carrying a 50 pound bag may feel less burdened than a weak person carrying a 20 pound bag. Taxes are similar: Progressive taxation is based, in part, on the idea that the rich should pay more, but also on the idea that they can pay more.Here's how that works out in real life: The average after-tax income of the average person in the middle income quintile is $52,100. That's down from about $60,700 after an effective federal tax rate of 14.2 percent. In the top quintile, the after-tax income is $184,400, down from $248,400 after a 25.8 percent effective federal tax rate. The rich person certainly pays more, both in absolute terms and as a share of income. But is their burden greater than the middle-income taxpayer left with $52,100? It's hard for me to see how.In any case, here's an updated graph of tax rates. I've added share of taxes to the mix. But I've also added share of after-tax income to better illustrate the real-world hit different income quintiles are taking. As before, all data comes from the CBO.
And be warned: This isn't even the last tax graph I'll post today. You folks are so lucky to read this blog! 
