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2012 Election, Economics

Tax “Burdens”

After Romney seemingly stepped in it with his comments about the 47% who don’t pay Federal income taxes, I started talking with a friend of mine about tax “burdens.”  Typically, the way that is characterized is what percentage of your income is paid in taxes.  And as such, the rich, and specifically, the 1% would have the highest tax burden.  Hence the Romney comments…which, for what it’s worth, are just a continuation of the same conservative perspective that has been ongoing for years.

But there is another way to define “burden” and it centers around how much does one actually sacrifice.  For instance, as my friend put it, a higher tax rate on a billionaire potentially means they can’t buy a second home, while a higher tax rate on someone who makes $50K potentially means not being able to afford childcare.

Sounds about right.  Of course, to think about “burdens” in this manner is almost akin to pursuing equality of outcomes.  Whatever you think about that, it’s not really gonna fly in these United States of America, so it’s probalbly better to think about it in terms of what percentage of a household’s income becomes disposable income that it can save and / or spend on extra stuff (ahhhhhhh stuff!)

So I looked at hypothetical households at different income levels (and therefore different tax rates) to estimate their tax “burdens.”  It’s wonky, but I simplified the analysis by not including other taxes such as payroll, sales, etc. which would make the picture in the table below look even more stark:

Basically, as households increase their pretax income, sure, their tax rates increase.  But so does their after tax income, and more importantly, their disposable income.  That’s because those at the bottom of the distribution use a larger share of their income to purchase basic necessities.  For the lucky duckies, those that conservatives are talking about who earn income yet pay no federal income taxes, they spend 64% of their income on basic necessities, leaving 36% left over for disposable income.  And that’s with no federal income taxes .  However, for households in the top 1%, when combining both their federal income taxes and basic necessities, they still have 70% left over for disposable income.  To bring the top 1% to par with the lucky duckies would require their income tax rate to increase to 58%.  And remember, this is about percentage of disposable income, not absolute dollars (which would still be well over 10X higher for the top 1% in the higher tax scenario).

This is what “burden” means.  I don’t agree with the conservative arguments regarding supply side job creators, the idea that those that make more money deserve it because they work harder, or that all taxes are evil and are attacks on freedom.  However, at least their logic, however flawed, is not as hopelessly wrong as the lucky duckies trope.

The lucky duckies aren’t lucky at all.  Their “burden” is higher than all of us.



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