American Elephants

American Income Mobility is a Wonder of the World! by The Elephant's Child
June 30, 2010, 7:00 am
Filed under: Capitalism, Economy, Law, Taxes | Tags: , ,

The Congressional Budget Office has analyzed the 2007 income-tax files.  These graphs show the quintiles into which the Treasury Department divides American taxpayers according to income shown by IRS figures.  The United States has the most progressive federal  tax system of any developed country. Here, in the first graph, are the quintiles of taxpayer income, by percent of all income.

The second shows taxes paid by each quintile of taxpayers by percent of taxes paid.  Each graph can be enlarged by clicking on it.

Here the graph demonstrates the share of pretax income paid, and the shares of total taxes paid by all.

The highest quintile of earners, the fabled “rich” pay 70 percent of all taxes paid.  Is that enough, too much? What does this information do to all the “soak the rich” demands? Most people when queried about how much taxes anyone should pay, believe that no one should pay over 25 percent.

Obama’s redistributive policies are based on a concern that there is too big an income gap between the rich and the poor. But the poor are not getting poorer, they are getting richer too. Nearly 60 percent of taxpayers move up from the bottom quintile within ten years. Nearly 40 percent of taxpayers move down from the top quintile during the same period.

A report from the Tax Foundation, once again shows that roughly half of millionaires during the period w999 through 2007 attained this status just once during those nine years.  Only 6 percent of this group were millionaires in all nine years.

The problem with all the political attacks on “the rich” and the complaints about the “income gap” is that they are based on snapshots of the population at a moment in time, and do not recognize the extraordinary mobility of Americans through income distribution.  Most people start out poor, their income grows as they rise through a working life, and declines as it ends and they enter retirement years.

Keep in mind that most jobs are created by those upper quintiles.  So what is fair, and what is moral?


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