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Graph of the Day: The Middle Pay More, the Rich Pay Less
Having established that Minnesota only has one progressive tax type, it's time to look into what that means for how taxes are distributed relative to income. (We've looked into this before, but this graph offers a bit more context.)
(Data from 2011 Minnesota Tax Incidence Study)
Let's start with the painfully obvious point covered before: the bottom 50% all together are paid less than the top 1%, yet contribute more in taxes. I think we can all agree that fails any reasonable definition of fairness.
The fact that households' shares of income are lower than their shares of taxes all the way up to the top 10% means that the working class and middle class are trapped on the losing side of a regressive tax system. That it's a fairly flat regressive tax system is small consolation.
We can argue about how progressive a tax system should be or what constitutes a good distribution of income. I'm not particularly radical on this front, but I do think that Minnesota's bottom 90% should pay a lower share of taxes than they are paid in income. I don't think it is at all unreasonable to expect the richest Minnesotans to pay a larger share of taxes, especially as their prosperity is a result of broad social investments in education, transportation, safety, economic development, and other areas as well as of their own initiative and effort.
Before shedding a tear for the top 1%, it's worth noting that the average household income for that group is $1.1 million. That's more than 25 times the state median income of roughly $41,000. While most of the state is working just as hard, if not harder, than the top 1%, our incomes are not (despite conservative claims otherwise) a perfect representation of our actual effort and productivity.
As I've said before, I think a more balanced distribution of pretax income is preferable to an aggressively redistributionist tax policy. The responsibility for that is more in the hands of the top 1% than it is the bottom 50%, however, and absent any serious action on that end, we are perfectly justified in demanding a more progressive tax system.
Posted in Fiscal Policy | Related Topics: Graphs Economic Inequality Working / Middle Class Issues Income Tax Tax Fairness
29 Comments
December 19, 2011 at 2:26 pm
Since the vast majority of our Federal legislators are middle class, it doesn’t speak too well of your middle class does it Danny boy. One could conclude that all tax loopholes are the fault of the self serving, ruling, middle class. What we are right back too is the unholy aliance between the rich and the middle class, and how little we of the poor should trust either.
December 19, 2011 at 1:53 pm
From my understanding, the chart covers only minnesota state and local taxes; not federal taxes. In Minnesota, capital gains are taxed progressively at the same rates as income, right?
So how are the rich paying less despite higher taxes?
December 19, 2011 at 1:28 pm
Stewart, this happens through countless mechanisms to avoid taxes. First, there are actual changes to the tax rate on different sources of income. For example, the vast bulk of income for the .1% of the rich is capital gains, dividends, or what we call UNERANED income. The tax rate for that is 15%, not the progressive tax rates. There are other tax rates even less. Inheritance tax rates are very very low. Also, payroll taxes stop taxing after about $110,000 a year. All of the above make taxes regressive.
In addition to alterations of the tax rate, there are tax deductions and credits given to individuals and companies. There are agricultural crop subsidies, reduced property taxes for agricultural land, crop insurnace, etc. For oil there are depletion allowances, drilling allowances, and bargain basement prices offered for public land mineral rights. In addition, there are investment credits and credit for foreign taxes, depreciation credit. Also, there are endless tax deductions given to businesses and corporations to reduced tax liabilities. For example, corporate jets are just one. In addition, corporations are allowed to deduct the cost of lobbying and “investments” in campaigns, when the public wage earner is not allowed to do that.
The net affect of these altered rates and many deductions is, while the corporate tax rate is among the highest in the industrialized world, the ACTUAL TAXES PAID by corporations, are among the lowest in the world. Corporations tout their high tax rates to get your symnpathy, but they actually pay among the lowest corporate taxes in the industriualized world, thanks to credits, deductions, and subsidies.
The rich in our country don’t pay their fair share of taxes because of all their political clout, giving them reduced tax rates for their primary source of income…investments. They also get deductions and credits not available to middle-income people because only the rich can afford to buy the deduction.
December 19, 2011 at 12:39 pm
How does this happen when MN has a progressive tax system? What are the loopholes?
December 19, 2011 at 9:26 am
The tax system your speaking of under Lincoln has no connection to the proggresive tax system designed to make prohabition possible Dan and you know it. The tax system your speaking of, while it may have been a proggresive type tax was not promoted by the American progressive movement which did not yet exist. So much for your attempt to take this conversation off course.
December 16, 2011 at 6:25 pm
WD Billy - You are wrong again. The first progressive tax in the US was instituted in 1862 by Abraham Lincoln (Republican by the way) to help cover the costs of the Civil War.
How can your conclusions be right when your facts aren’t
December 13, 2011 at 9:36 am
Tony and Dan, you are having a bit of trouble with history here. The USA did not have a proggresive tax system until just before prohibition when this garbage tax system was put in place to undermine the governments reliance on alcohol tax making prohabition possible. It created the IRS and the horible taxation mess we have now and it has never been fair to everyone let alone the working class. It long ago served it’s ignorant purpose and has been a noose around our necks ever since.
December 12, 2011 at 6:13 pm
WD Billy - I don’t think I have to prove anything more than I have. It would be helpful if you got out of your lazy brain syndrome and Google Adam Smith. His influence on our founding fathers was profound. Also, he did support a progressive tax. That’s a fact!
You other ramblings about flat tax with not deductions vs. progressive tax makes little sense. Congress, being what they are can change anything through legislation to suit their purpose of the ones out of Government that have bought our Congress. Flat tax systems can easily have deductions added later, just as easily as added to progressive taxes. Rates can change or whatever.
Our problems is not the tax system, it is a crooked and bought Congress. The fact that there are over 100+ lobbyists per legislator, the fact that corporations are spending almost limitless amounts to bribe our Congress is a testimony to its success. Business doesn’t spend and corrupt Congress without a return on their dollar. If we are to get any meaningful tax legislation we have to first get the money out of politics. Right now we have the best Congress that money can buy.
December 12, 2011 at 6:04 pm
Bill, your calling me elitist is as phony as your arguments. I drive a 17 year old car & work three jobs to make ends meet & I still beat your arguments. Your insults dont fit…
December 12, 2011 at 5:39 pm
Tony and Dan, again with the rehtoric and no proof. I have shown you where it works and we have concluded that income must be defined and that loopholes, (even yours), must go away. It has always been designed for easy adjustment of the % rate so as to resist the disire of legislators to add such loopholes at a later date. The problem here is that it does not fit in your concept of fair because it takes away public employee control. As the cry grows to put this system in place you better be planning for how your going to create a win win situation for you and your elitist friends. As for getting more money out of the rich, this doesn’t stop that it just gives us a fair footing from which to start. I would be happy collecting 90% of the taxes from those holding 90% of the new income as a solid starting point. After that you can be as creative as you want, I may even support you.
December 12, 2011 at 8:50 am
Tony, tony, tony
How little you know of me, and now you drag my name thru the mud by calling ME a conservative.
Hell will likely freeze over before I ever go back to my conservative roots. I still tend to be a bit middle of the road, but am firmly planted on the left side of the road.
My stance on taxes is that all youout there claiming a progressive tax system works are failing to admit we dont have that right now, and are not likely ever going to unless we all get out there and occupy something.
Look back at my first comments on this thread and you will see that I made a comment about finding me actually agreeing with Bill on something. That is a rare occasion, very rare.
So please, keep the anme calling (i.e. calling me a conservative) to yourself.
thank you to all that have been reading this thread. I had hoped to see more posts, but allas this one did not engender much chatter as others have.
December 11, 2011 at 10:59 am
I don’t agree with the flat tax at all. Progressive taxation has been the philosophy of our government/economics from the founding of our country. Adam Smith, the founding father of economics recommended a progressive tax. It has also bee a premise of our current income tax system from the very beginning. However, our progressive income tax has been perverted by the influence of the rich, where many times they pay less in income taxes than the middle class.
I believe the progressive income tax has to be reinstated. The rich need to pay far more in income taxes than the poor. It makes zero sense to tax money away from poor people who can not afford to pay any tax and undertax the rich who can afford to pay far more. The rich have reaped a far more disproportionate benefits from our society and they should pay far more for that good fortune.
December 9, 2011 at 7:29 pm
Ron & Bill, as always conservatives have no reply for the truth in my statement. The only way we can maintain any lifestyle resemblance to the lives our parents had in the 50’s-70’s is a progressive tax system(no tax loopholes is fine by me). With the top 400 families controlling more wealth than the bottom 50%, there is no way we can get enough tax income to run our civilization with a flat tax. The whole concept is to reduce the amount of money paid to the government. You guys can live in your dream world of flat taxes & see your & your childrens lifestyle wither on the vine. You need the wealthy to maintain what you have, you dont make enough money. You can pi—away the American dream, I’m not that dumb.
December 9, 2011 at 2:46 pm
Tony, I can appreciate your reticence to accept a ‘flat tax’ system. but keep in mind what Bill pointed out regarding the CBO numbers, they dont use a ‘new definition’ if income that I proposed. The CBO does not have numbers for what the flat tax would be with my definitions of income. My definition would create a lot more income that gets taxed as income, so the flat tax rate would be lower, but i honestly do not know what ‘lower’ is with my proposed definition of income.
And please also remember that I proposed getting rid of all or at least most deductions that many of us now enjoy. I may not get many deductions, but I will admit that I like deducting my property taxes and my mortgage interest. I have at times been able to deduct medical expenses too, and who of us that fill out a long form doent have some sort of charitable donations that we deduct?
So, while you and others still bristle at a flat tax system, you missed the mark on changing my mind on it working for us.
December 9, 2011 at 1:42 pm
Your part way there Tony, the CBO figures assume keeping everything the same and in fact anticipate increased spending built into the existing status quo. The growth rate in the intelligence (and I use that word lightlty) community in this country has been and still is obsene and wastfull. The attempts to put ever more people on the Medicare program only increases cost and opportunities for fraud in a system that has never addressed it’s fraud problem. That’s only the tip of the iceberg. The potential is for a 15% flat tax or possibly less with cuts an new revenue such as $450 Billion yearly from marijuana legalization and product control. As for schools and libraries, give control of those issues and funding back to local control, our money making the circle through the Federal government always loses value by the time it returns to us. The farther the Federal government stays away from education the better, we allready lost 2 generations to this Socialist stupidity now it is time to get back to what works and what once made us renouned. Roads is a much more complicated and intertwined issue.
December 9, 2011 at 1:15 pm
Bill, I write slower so you can understand. 26% is what the CBO came up with to sustain the programs that support the poor & working class. Rick Perry’s flat tax plan is at 20% & assumes program cuts to get down to his numbers. A progressive tax is lowest for the poor & highest for the rich. You are correct, its the loopholes that change those figures so that the poor pay the highest percentage. Let’s fix that. But if you pay less, somebody has to pick that up, & that’s where the wealthy come in. Our grandparents knew that. But the current generation has been convinced by Limbaugh that programs that maintain our lives(good roads, schools, libraries, etc) are bad and that we shouldnt have them, so they can pay less taxes. Right now the top guys average 9%. What do you pay? It’s you or them, you decide.
December 9, 2011 at 10:15 am
26% Tony, that’s the highest BS figure I’ve seen yet. Perhaps you would rather give us a 12% or so Federal sales, or the clever new wording (value added), tax garuanteed to tap us all harder the poorer we are. You elitists, (rich or middle class) just love reggresive taxes that reduce your burden by putting it on us. Only the politically retarded believe increasing taxes on the wealthy is going to get us out of this mess.
December 8, 2011 at 6:23 pm
Wow, flat tax, really… That dog dont hunt. It would raise middleclass taxes & lower taxes on the wealthy(something obviously your leaders on Fox want). The CBO rated a national flat tax would have to be 26%. To maintain what shred of civilaztion the middleclass has left, means we need the wealthy to pay more than us. Our grandparents knew this(how come their smarter than you) & put in the progressive tax system & the 50’s, 60’s & 70’s were great for the middleclass. The we got Reagan & our incomes have been flat or dropping since. If you want a future for your kids, get the Koch Bros. & Bill gates to pay a little more. Trust me, they wont even notice.
December 8, 2011 at 6:06 pm
Mr. Leurquin seems to hit the points. I would prefer a progressive tax, but it is so easy to define income in ways that allow an escape.
He hits the points. 1) Redefining income and 2) a base level that is exempt, something that is a substantial percentage of a basic living wage. Like the tithe, it should be determined based on one’s “increase.”
December 8, 2011 at 5:36 pm
This rediculas class warfare nonsence is mearly a distraction for the politically retarded. Thinkers understand that the real culprit is a failed tax system that benifiets both the rich and the middle class with potent deductions neither is willing to give up. The vast majority of us will continue to get reemed until it is gone.
December 8, 2011 at 4:08 pm
Now that’s the spirit of compromise Ron. Best of all I can agree with all of your improvements, that’s what the DFL use to be about, (and now we can go back to being enemies on any other issue we desire). What I have such a hard time understanding is why American Socialists are so adamently opposed to something that has worked so well for European Socialists, (personally I don’t consider it Socialist but nuetral and common sence)? Why has this become the mantra of outsiders here as conservatives don’t like it either which is somewhat understandable considering who the best deductions now go to.
December 8, 2011 at 11:36 am
While I dont often find my self agreeing with Mr Hamm, I am on a similar page with a flat tax system. Ive had some tell me ‘it wont work’, but IMHO, it will IF and only IF,‘INCOME’ is redefined.
How I picture a flat tax working is that ALL monies coming in are treated as income. This could eliminate the ‘death tax’ as some like to call it because if you inherit its treated as income. Sell stocks at a profit, income. Get good returns on your savings, income. Get rid of most if not all deductions. Perhaps a base level of income could go untaxed, but that should apply to all persons then, regardless of income.
I’m very open for someone to refute that this system would be ‘unfair’ or ‘not work’, but only if you can use examples or facts or some statistics to back up your premise.
A flat tax does not discriminate, we all know in advance how much ‘uncle sam’ is going to take out ov every dollar we earn, regardless of how many or fwe we earn or choose to earn.
I know getting rid of deductions will bunch up some peoples shorts, but so be it. Your deduction (or mine for that matter) mean someone else pays taxes, or were all paying higher taxes becuse of all the deductions being allowed.
Just think of the day when all of us could fill out a short IRS form?
December 8, 2011 at 10:49 am
KJC echoes a reminder that seems to get lost in a lot of the rhetoric. Are we a nation without a history? I think we forget every four years, if not more rapidly.
In addition to the Gilded Age we now revisit, we only need to look back on the past decade of tax breaks for the wealthiest, some of them disguised to help married couples, some farmers, some small businesses, some “working” people, but all for the wealthy. A decade of tax cuts for the rich landed us in the worst economic and fiscal crisis since the Greatest Generation.
December 8, 2011 at 10:11 am
Michael, too bad this graph is totally out of context. One thing we should wonder about imediately is a graph that shows the second 45% with 55% of income. This only proves the old adage, “figures don’t lie but liar can figure”. Our Federal Tax system was created to allow prohabition, (anouther proggresive wonder), to happen. The real question is why have proggresives refused to look at fixing this feasco after prohabition failed. Minnesotas “proggresive” tax system was very much modeled after the Federal model. We the people want this tax system fixed to make it simpler and to remove all the tax loopholes used by the rich and middle class. Something like a fairly impimented flat tax system with a bottom end drop off and an affective job creation credit for the top tier and middle class. I have no time left for this failed proggresive sewage that produced those graph readings.
December 8, 2011 at 9:34 am
I looking at Teddy Roosevelt’s “Square Deal” speech back in 1910, you have to be struck by how the “Gilded Age” of income inequality was causing a lot of trouble. T.R. was a Republican president I hasten to add, and he made it clear six-ways-from-Sunday that this kind of on-going inequality was bad for the country, all around. I invite everyone to read the text of his (Kansas) speech. The parallels with issues of today are striking. Seeing what a Republican proposed back then also serves to demonstrate how far right things have gone… I bet he would be denounced as a socialist or communist today… and he was a Republican!
The Roaring 20’s came, speculation was rampant, regulation weak, etc. The Top 1% managed to corner more than 25% of the national income in 1927. We got? The Great Depression. Franklin Delano Roosevelt, a Democrat, came up with the “New Deal” to get us out of that.
As I write this, I am present to how many mistakes of history we, as a country, are repeating. The wealthy managed to corner more than 25% of the national income once again, in 2007. We got? A Mega Recession.
There was the Square Deal and then The New Deal… and it sure looks to me that we need an “xxxx Deal” to get us out of this monumental mess. What should that “XXX” be? The “Fair” deal, as one example? Other productive insights? Once that becomes the order of the day, issues such as this: about how everyone but the wealthy pays a higher percentage of taxes than they get in income will get resolved without so much vitriol.
We have managed to rectify many of our past mistakes, I think that is one of the strengths of our great country. I sure hope we “shout down” the forces that seek to divide us with “blame the victim” politics, and see that we’re all in this together. “Fair Deal?” Then let’s all get on with really solving this big mess SOON!
KJC
December 8, 2011 at 9:19 am
exactly! how can it be expexted that anything will change without campaign reform. it is blatently clear that nothing will change if elections are merely purchased by the highest bidder.
December 8, 2011 at 8:40 am
Time to go back to the 50’s when the government had enough money to run a decent system…the do campaign finance reform….oops! can’t do anything the rich object to until we do campaign finance reform.
Dan Conner says:
December 21, 2011 at 10:22 am
WD Billy - your post defies logic or point. I have no idea about the legislature and the “middle-class.” First, where are ytou facts? Then, I would like you to define “middle-cl;ass.”
Second, the problem of votes from our legislators is not the class of the people in them, although a growing number of people feel they have none, the problem is the rich in the rest of the country who have chosen to use their money to buy our legislatures. To a large degreee the rich have been successful doing that.
The rich have bee3n guilty of bribery and the legislators guilty of accepting bribes. TGhe rich has had well enough money left over to buy our entire government.