Soaking the rich

Following on my first (new) post below, here is more data regarding where our tax system is heading. This information has been around long enough that it is difficult to believe that our politicians are not pushing us along this path, but maybe that's being paranoid.

The first chart below shows the share of total taxes paid by the bottom 50 percent of taxpayers. For the latest year available from the IRS, this fraction is less than 3 percent.

The next chart shows, for comparison, the share of taxes paid by the top 5 percent (that's five without a zero). For the latest year, that fraction of over 60 percent. Is there anything to be concerned about in these statistics. One way of judging this is to compare the tax share with the income share--the share of total income that the top 5 percent earn. For the most recent year, that share was 36.7 percent. So the top 5 percent of income earners take in 36.7 percent of the measured income, but pay more than 60 percent of the taxes paid. I'll leave the question of whether that is fair to another post.

What about the bottom 50 percent of taxpayers?This is what concerns me. What is happening is that the share of income taxes paid by the bottom 50 percent is approaching zero.

Here's the bottom line. As soon as the bottom 50 percent are paying no tax, there is no chance of reforming the tax system to make it fairer and more efficient. Once half the income earners pay not tax, what incentive do that have politically to support tax legislation that lowers taxes on the top 50 percent?

We are moving toward a situation, in other words, where lowering tax rates will be impossible.

That situation is a liberal politician's dream and in light of their performance the last 10 years, it may be a conservative politician's dream also. The liberals don't have to worry about the electorate thwarting their plans. (That's different from the economy thwarting their plans.) But the conservatives can still propose earmarks while paying lip service to lower taxes, because they know the electorate will never stifle their own tax and spend plans. How's that for a conspiracy theory for you.